Back Wage Payments are Due December 15

Readers continue to call in with questions concerning proper procedures for making piece-rate back wage payments, either to workers directly or the DIR Unpaid Wages Fund. Employers may make payments directly to the employee, or to the Unpaid Wages Fund for employees who cannot located to make direct back-wage payments for inadvertently under- or uncompensated rest and recover periods as permitted by Labor Code 226.2 (also known at AB 1513). These payments afford the employer a “safe harbor” from lawsuit liability.

Two unique questions have been asked several time in the last few days, which we have posed to appropriate staff at DIR:

1. If an employer receives return delivery of a back-wage payment check sent to an employee to whom delivery cannot be completed (for whatever reason; bad address, not at last known address, etc.) should the employer simply forward the check and accompanying paperwork to the Unpaid Wages Fund?

Answer: No. DIR will not accept and negotiate these checks. It is unclear whether DIR will eventually return such deliveries to employers who send them. The employer should stop payment on any returned checks (even if already mistakenly forwarded to DIR), and send a single check covering all amounts due to employees to whom checks could not be delivered to DIR for deposit in the Unpaid Wages Fund.

2. Will DIR accept after December 15 for deposit in the Unpaid Wages Fund payment of safe harbor amounts that an employee mailed to affected employees but that were returned to the employer as undeliverable just prior to or after the December 15 deadline (or even months after the deadline)?

Answer: DIR will accept such payments made in compliance with the instructions in the DIR FAQ (below). According to one DIR staff person,

If your employers are also asking how this will affect their compliance with the safe harbor/affirmative defense, there probably isn’t a problem or issue if they made a good faith effort to the pay the employees (whose checks were returned) in the first place. We would just encourage them to take the extra step of redirecting those payments to the Unpaid Wage Fund whenever the checks are returned. Compliance with the safe harbor/affirmative defense requirements is for a court or hearing officer to determine, not DIR. And compliance will only become an issue if someone pursues a claim or lawsuit for back pay and penalties, etc., notwithstanding the employer’s payments.

Again, You can review all DIR’s Frequently-Asked Questions concerning Labor 226.2 (AB 1513) at this link.

For your convenience, here in full are payment instructions for payments to the Unpaid Wages Fund:

Q. How does an employer go about making payments to the Labor Commissioner “pursuant to [Labor Code] Section 96.7” for former employees who could not be located?

A. Employers who have elected to participate in the affirmative defense provisions of the statute are required, among other obligations, to make “payments by no later than December 15, 2016, to each employee to whom the wages are due, or to the Labor Commissioner pursuant to Section 96.7 for any employee whom the employer cannot locate.” (Labor Code section 226.2(b)(4).) Labor Code section 96.7 refers to the Industrial Relations Unpaid Wage Fund.

Employers must use due diligence to track down and pay former employees. If unsuccessful, the money due to employees who cannot be located must be paid into the Unpaid Wage Fund. This payment must be accompanied by an additional administrative fee equal to one-half of one percent of the “aggregate payments made” or $2,500, whichever is less.

Instructions for making payments to the Unpaid Wage Fund:
Required items:

1. A statement in both printed and electronic format that lists the following information for each employee covered by the payment:

Name

Net amount payable to the employee after withholding*

If available, employee’s last known address and social security number

2. One check for the total of all amounts being paid into the Fund at that time for employees who could not be located.

Make this check payable to: INDUSTRIAL RELATIONS UNPAID WAGE FUND

3. A second check equal to ½ of 1% (.005) of the amount in item 2 or $2500.00, whichever is less.

Make this check payable to: LABOR ENFORCEMENT AND COMPLIANCE FUND

Please send all of these items by no later than December 15, 2016, to the following address.

We recommend sending everything by certified mail, return receipt requested, in order to confirm timely delivery and receipt.

*Note On Payroll Taxes and Withholding:
The payments to be made to employees and former employees under Labor Code section 226.2 are in the nature of back wages or supplemental wages, and are subject to payroll taxes, tax withholding, and tax reporting. This is true of both the payments made directly to current and former employees who are located, and for former employees who could not be located and whose payment will be made into the Unpaid Wage Fund. If an employer is making a payment into the Unpaid Wage Fund for a former employee who could not be located, the employer should perform all tax withholding, tax payment and tax reporting for that payment, and pay only the net amount due to the employee into the Unpaid Wage Fund.

If employers have questions about how to properly handle payroll taxes, withholding and reporting for these payments, they may contact the EDD Taxpayer Assistance Center at 1-888-745-3886.

Finally, employers are reminded of their obligation under subdivision (d)(3) of Section 226.2 to “preserve all records of hours worked, calculations of hours worked, and records of payments made to employees and the Labor Commissioner . . . until December 16, 2020, and furnish the records related to an employee on request by the employee.”

You can review FELS’ information page on AB 1513 along with FELS’ FAQ http://www.fels.net/1/